Recession Coming? Just Check Lumber
A: This is why I LOVE blogging. If I weren't a blogger, I wouldn't be opening up my daily reads to sites like RGEmonitor or Calculated Risk. The latter happens to be a very high quality read from a retired corporate exec who just enjoys talking about what he knows. And Bill of Calculated Risk knows the economy and how to interpret data. Check out his latest blog entry on the relationship between lumber prices and recessions, based on real time information from a friendly insider in the lumber industry!
The forward thinking concept of analyzing what trends are occurring right now that might later produce a economic slowdown include those in the lumber industry.
According to CR:
Our business is a large hardwood sawmill (sawing oak, maple, cherry, ash, etc.), for the furniture (read: HOUSING) industry. We usually enter recession five to six months ahead of the rest of the economy. IT'S HERE! Prices for green and finished lumber are falling at a faster rate than at any time since 1974Thanks to a comment on the post, I found this chart of lumber prices over the past 6 months showing the dropoff in lumber prices.
CR Concludes:
Lumber, along with New Home sales, and starts and completions all tell us basically the same thing; the housing market is in a deep recession - and we should be concerned about the general economy
Posted by Jim Duncan
Wed Mar 21st, 2007 10:30 AM
CR has been on my daily reading for some time. There seems to be information and analysis there that for some reason I don't find elsewhere.
I had to search Roubini's site for the RSS feed, and have now subscribed. Thanks!
Posted by Noah
Wed Mar 21st, 2007 10:59 AM
Yea CR is a GREAT read and provides very creative data and anaylsis that is truly hard to find elsewhere!
I feel more educated every time I read that blog! And the publisher is a great guy as I had the honor of talking to him a few times about optimizing his site for search engines. He's a good guy!
Posted by newbie
Wed Mar 21st, 2007 11:00 AM
Interesting point - though I'm no expert on the lumber industry, could there be additional factors at play here, such as more competition from international markets (i.e. Canada, which the US reduced lumber tarrifs last year)?
Posted by More Cowbell
Wed Mar 21st, 2007 12:04 PM
That's it!!! You nailed it!!!
LUMBER is a LEADING indicator.
Nicely done Urban Digs!!!
Posted by Noah
Wed Mar 21st, 2007 12:14 PM
newbie - I'm no expert on lumber prices and its relation to economic cycles either or on the fundamentals of this sector, but I would tend to think not. I just think consumers and builders are starting to slow/see slowdowns and that is driving down demand.
Where did you read about the reduced tariffs with Canada? Id be interested to see the entire article.
Posted by newbie
Wed Mar 21st, 2007 02:37 PM
Noah, I actaully read about the tarrif deal on the "Comments" section of the CR blog article you provided. As a former economics grad student and Fed employee that comment resonated with me.
There were some other interesting tidbits shared, like the relationship of prices for other commodities used for homebuilding (ie copper) to the housing market have actually been increasing during the same period lumber prices have been falling. Also, the last time lumber prices fell this dramatically was before the 2001 recession, but that didn't seem to cause a downturn in the housing market.
So perhaps lumber can be a good indicator of a recession but it may not relate to the housing market due to other factors? I'd be interested in reading further analysis on the topic.
Again, thanks for posting!!